What Is the Small Business Restructure Rollover?

The small business restructure rollover lets an eligible small business move active assets from one entity to another without triggering an income tax bill on the transfer. It sits in Subdivision 328-G of the Income Tax Assessment Act 1997 and has been available since 1 July 2016.

Without it, changing structure is expensive in a way that has nothing to do with the merits of the change. Moving a business into a company triggers a CGT event on the CGT assets, a balancing adjustment on the depreciating assets, assessable income on the trading stock, and a profit on the revenue assets. All of that on a transaction where nobody has actually cashed out.

The rollover switches those consequences off, and hands the transferee the transferor’s cost.

It is also unusual among the rollovers in one respect: it does not force you into a company. You can move to a company, to a trust, to a partnership, or to a sole trader, as long as the conditions hold.

The 4 conditions. Fail any one and the transfer is taxed as an ordinary disposal.

Who is eligible

Each party to the transfer has to be, in the income year of the transfer, one of the following: a small business entity, an entity with an affiliate that is a small business entity, an entity connected with a small business entity, or a partner in a partnership that is a small business entity.

Small business entity here means aggregated turnover under $10 million. Aggregated turnover is not just your own revenue, which is where a lot of restructures come unstuck. It picks up connected entities and affiliates, so a group that feels small can test larger than expected. The mechanics are in aggregated turnover.

Which assets qualify

Active assets only. Those being assets used, or held ready for use, in running the business.

Within that, 4 categories are covered: CGT assets, depreciating assets, trading stock and revenue assets. That breadth is the point. Most rollovers deal only with CGT assets and leave the plant and the stock to be handled some other way.

The rollover is not available for other business assets. A loan to a shareholder is the standard example, because it is not an active asset of the business run by the lender. Anything sitting in the entity for passive or private reasons is outside as well.

The genuine restructure test

The transfer has to be part of a genuine restructure of an ongoing business, rather than an artificial or inappropriately tax driven scheme.

Whether a restructure is genuine depends on all the facts. That is uncomfortable to plan around, so there is a safe harbour: hold the position for 3 years after the transaction takes effect and the condition is treated as met. Over those 3 years, there must be no change in ultimate economic ownership of the significant assets transferred, those assets have to continue to be active assets, and there can be no significant or material private use of them.

The safe harbour is an alternative route to the same condition, not a separate requirement. A restructure can still be genuine on the facts without it. The Commissioner’s view on what genuine means, with worked examples on both sides of the line, is set out in Law Companion Ruling LCR 2016/3.

Ultimate economic ownership: the condition that fails most often

The transaction must not change the ultimate economic ownership of the transferred assets. Where more than one individual has ultimate economic ownership, each individual’s proportionate share has to be maintained as well.

That second sentence is the one that kills otherwise sensible restructures.

Three equal partners moving a business into a company, and taking shares in unequal proportions because one of them has other income and the household tax bill would be lower that way, have kept the same individuals as owners. They have changed the proportions. The ATO’s own example on those facts concludes that the restructure is tax driven rather than genuine, and the rollover is not available.

A sole trader who transfers the business into a unit trust and holds every unit has changed nothing. Ultimate economic ownership is unmoved, and the condition is met.

Ultimate economic ownership can only be held by natural persons. Where a company, trust or partnership holds an asset, you trace through it to the individuals behind it.

How discretionary trusts fit

A discretionary trust has no fixed entitlements, so tracing ultimate economic ownership through one is awkward by design.

A discretionary trust can still satisfy the test where there is no practical change in which individuals economically benefit from the assets before and after the transfer.

There is also an alternative test for family trusts. It is available where the trustee has made a family trust election, and every individual who had ultimate economic ownership of the asset before the transfer, and every individual who has it after, is a member of the family group relating to that trust.

If you are still deciding between the structures rather than moving between them, start with trust vs company tax and sole trader vs company.

What happens after the rollover

Both parties have to choose to apply the rollover. It is not automatic.

1. Neither party has an income tax liability on the transfer itself.
2. The transferor is treated as having received an amount equal to its cost of the asset. The transferee is treated as having acquired it at the same amount.
3. Pre-CGT assets keep their pre-CGT status.
4. For the CGT discount, the transferee has to hold the asset for at least 12 months after the transfer before a CGT event happens to it. The clock restarts.
5. For the small business 15-year exemption, the transferee is treated as having acquired the asset when the transferor did. That clock does not restart.
6. Depreciating assets carry across without a balancing adjustment, and the transferee keeps deducting decline in value using the same method and effective life. How the two paths differ is covered in write it off now or depreciate it.

What the rollover does not do

This is where restructures go wrong after the tax question is settled.

It is an income tax rollover and nothing else. Stamp duty is a state matter and has to be checked separately in each jurisdiction. GST consequences are separate again. Neither is switched off by choosing the rollover.

Meeting every condition also does not protect the arrangement from the general anti-avoidance rules. A scheme built around the rollover can still be attacked under Part IVA.

And it does nothing about the loan accounts. Moving a business into a company does not resolve amounts owed to shareholders or their associates, which stay a live issue under Division 7A.

Documentation

The choice to apply the rollover, the analysis behind the genuine restructure conclusion, and the ultimate economic ownership tracing all need to be on file at the time, not reconstructed later.

If you are relying on the safe harbour, the file also has to carry the 3 years of evidence that the position held: ownership unchanged, assets still active, no material private use. General retention rules are in what records to keep for tax.

One thing worth flagging if you are an accountant rather than a business owner: since 1 July 2026, the act of building or reshaping the entity is a designated service under the anti money laundering regime, with its own customer identification and record keeping obligations that sit outside the tax file. Which accounting work is caught is set out in which accounting services trigger Tranche 2.

If you want the rollover conditions tested against your actual numbers before you commit to a structure, that is what Tax Assistant is for.

The regulatory detail

Current as at July 2026.

The small business restructure rollover is in Subdivision 328-G of the Income Tax Assessment Act 1997 (Cth) and applies to transfers from 1 July 2016.

Eligibility: each party to the transfer must, in the income year of the transfer, be a small business entity, an entity that has an affiliate that is a small business entity, an entity connected with a small business entity, or a partner in a partnership that is a small business entity. A small business entity for these purposes has aggregated turnover of less than $10 million. Aggregated turnover is worked out under Subdivision 328-C, sections 328-115 to 328-130.

Eligible assets are active assets that are CGT assets, depreciating assets, trading stock or revenue assets. Active assets are assets used, or held ready for use, in carrying on the business. The rollover is not available for other business assets, such as loans to shareholders of a company, which are not active assets of the business run by the creditor.

The transfer must form part of a genuine restructure of an ongoing business, as opposed to an artificial or inappropriately tax driven scheme, and must not result in a change to the ultimate economic ownership of the transferred assets. Where more than one individual has ultimate economic ownership, each individual’s share must be maintained. Ultimate economic ownership can only be held by natural persons.

The safe harbour in section 328-435 provides an alternative way of satisfying the genuine restructure condition. It is met where, for 3 years after the transaction takes effect, there is no change in ultimate economic ownership of the significant assets transferred, those significant assets continue to be active assets, and there is no significant or material private use of them. See Law Companion Ruling LCR 2016/3 on the genuine restructure test and LCR 2016/2 on the consequences of the rollover.

Discretionary trusts may meet the ultimate economic ownership requirement where there is no practical change in which individuals economically benefit from the assets before and after the transfer. Family trusts may meet an alternative test where the trustee has made a family trust election and every individual with ultimate economic ownership before and after the transfer is a member of the family group relating to that trust.

Consequences: the transferor is taken to have received an amount for the transferred asset equal to its cost for income tax purposes, and the transferee is taken to have acquired it for the same amount at the time of transfer. Pre-CGT assets retain pre-CGT status. For the CGT discount on a later sale, the transferee must wait at least 12 months after the transfer before a CGT event happens to the asset. For the small business 15-year exemption, the transferee is taken to have acquired the asset when the transferor acquired it. Depreciating assets transfer without a balancing adjustment, and the transferee deducts decline in value using the same method and effective life as the transferor.

Where membership interests are issued as consideration, the cost base of the new interests is worked out by adding the rollover costs and adjustable values of the rollover assets, subtracting liabilities the transferee assumes for those assets, and dividing by the number of new membership interests. An integrity rule disregards a capital loss on any direct or indirect membership interest in the transferor or transferee made after the rollover.

From 8 May 2018, Commissioner’s remedial power instrument CRP 2017/2 ensures no direct income tax consequences arise from the transfer of depreciating assets undertaken as part of a transaction that otherwise qualifies for the rollover.

The rollover does not address stamp duty or GST, which are separate liabilities. Meeting the rollover requirements does not prevent the general anti-avoidance rules from applying to a scheme involving the rollover: see Practice Statement Law Administration PS LA 2005/24.

General record retention for tax purposes is 5 years: section 262A of the Income Tax Assessment Act 1936.

This article is general information, not advice for a specific restructure.